BLBG: OPEC to Make Record Output Cut to Revive Price as Demand Slumps
By Ayesha Daya and Ahmed Rouaba
Dec. 17 (Bloomberg) -- OPEC, supplier of more than 40 percent of the world’s oil, will cut production by a record 2 million barrels a day to shore up prices as global recession cuts demand, Saudi Arabia’s oil minister said.
The Organization of Petroleum Exporting Countries is set to reduce production quotas from 27.3 million barrels a day starting on Jan. 1, Ali al-Naimi, who sets policy in the world’s largest exporter, said before today’s meeting in Oran, Algeria.
Oil’s $100-a-barrel collapse from July’s record prices has cut revenue for producers, threatening government budget shortfalls. Saudi Arabia’s King Abdullah said last month that his country needs oil at $75 to spur development. Russia, the largest non-OPEC producer, may join the group in cutting output as global crude demand falls for the first time since 1983.
“Now, the question mark is non-OPEC cooperation,” said Mike Wittner, head of oil market research at Societe General in London. “More importantly, will the market believe that Russia or other non-OPEC will really cut” rather than include declines that are going to happen anyway.
Russia may announce a 400,000 barrel-a-day reduction in output to support the group’s action, Kuwaiti Oil Minster Mohammed al-Olaim said yesterday. Azerbaijan’s oil minister said today his country may cut production as much as 300,000 barrels a day.
Group’s Compliance
Al-Naimi said the group’s rate of compliance with a previous output cut was 85 percent. Asked if the latest reduction would start from Jan. 1, al-Naimi replied: “Yes.”
Crude oil for January delivery climbed as much as $1.15 to $44.75 a barrel, and traded at $44.60 at 8:22 a.m. London time on the New York Mercantile Exchange in electronic trading.
The price slump spurred OPEC to cut output for the first time in two years when it met in October. The group deferred a decision on further cuts at its Nov. 29 consultative meeting in Cairo.
Today’s decision will exceed the 1.9 million barrel cut agreed in March 2000. That was a bigger reduction in percentage terms than today’s likely 7.3 percent cut because Iranian production was excluded from the quota at that time.
The meeting started today with an opening session at 9:30 a.m. local time in the Sheraton Hotel in Oran, followed by a closed-door session at 11 a.m., a lunch with Algerian President Abdelaziz Bouteflika at 1 p.m., and a further closed-door session later in the afternoon. A press conference is tentatively scheduled for 4 p.m. local time.
To contact the reporter on this story: Ayesha Daya in Oran, Algeria at adaya1@bloomberg.net; Ahmed Rouaba in Oran, Algeria at arouaba@bloomberg.net.
